Th e following information pertains to Entiguan Sports, a hypothetical developer ofproducts used to treat sports-related injuries. (Th e treatment of items for accountingand tax purposes is based on fi ctitious accounting and tax standards and is not specifi cto a particular jurisdiction.) Calculate the tax base and carrying amount for each item.1 . Dividends receivable : On its balance sheet, Entiguan Sports reports dividends of €1million receivable from a subsidiary. Assume that dividends are not taxable.2 . Development costs : Entiguan Sports capitalized development costs of €3 millionduring the year. Entiguan amortized €500,000 of this amount during the year. Fortax purposes amortization of 25 percent per year is allowed.3 . Research costs : Entiguan incurred €500,000 in research costs, which were all expensedin the current fi scal year for fi nancial reporting purposes. Assume that applicable taxlegislation requires research costs to be expensed over a four-year period rather thanall in one year.4 . Accounts receivable : Included on the income statement of Entiguan Sports is a provision for doubtful debt of €125,000. Th e accounts receivable amount refl ected onthe balance sheet, after taking the provision into account, amounts to €1,500,000.Th e tax authorities allow a deduction of 25 percent of the gross amount for doubtfuldebt.
Th e following information pertains to Entiguan Sports, a hypothetical developer of
products used to treat sports-related injuries. (Th e treatment of items for accounting
and tax purposes is based on fi ctitious accounting and tax standards and is not specifi c
to a particular jurisdiction.) Calculate the tax base and carrying amount for each item.
1 . Dividends receivable : On its
million receivable from a subsidiary. Assume that dividends are not taxable.
2 . Development costs : Entiguan Sports capitalized development costs of €3 million
during the year. Entiguan amortized €500,000 of this amount during the year. For
tax purposes amortization of 25 percent per year is allowed.
3 . Research costs : Entiguan incurred €500,000 in research costs, which were all expensed
in the current fi scal year for fi nancial reporting purposes. Assume that applicable tax
legislation requires research costs to be expensed over a four-year period rather than
all in one year.
4 .
the balance sheet, after taking the provision into account, amounts to €1,500,000.
Th e tax authorities allow a deduction of 25 percent of the gross amount for doubtful
debt.
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